Chapter 5—The Family Business
TRUE/FALSE
1. When a parent retires completely and turns the firm over to a son or daughter, the firm ceases to be a
family business.
2. A company run by the great grandchildren of the founder would be considered to be managed by a
cousin consortium.
3. In a family business, the family’s primary function it to ensure the profitability and survival of the
business.
4. A family firm’s special patterns and beliefs comprise the firm’s organizational culture.
5. Husband-wife teams that own a business are popularly referred to as co-preneurs.
6. Two major factors involved in grooming a son or daughter to enter the family business are the child’s
aptitude and the right to choose a career.
7. Some family businesses benefit from effective collaboration among brothers and sisters.
8. A family business involving two or more children may experience either sibling cooperation or sibling
rivalry.
9. One sibling dilemma in a family business has been labeled the predator/parasite conflict.
10. In-laws not working in the family business may have a bad attitude about the company because of only
hearing one side of an argument.
11. The role of the entrepreneur’s spouse in family conflicts can sometimes be described as that of a
mediator in business relationships between the entrepreneur and the children.
12. In the family business, family considerations affect only members of the family.
13. Nonfamily employees in a family business may be caught in the crossfire between feuding family
members.
14. When hiring non-family employees it is only fair to identify the positions, if any, that are reserved for
family members.
15. Family retreats are best handled by an outside facilitator, who can help develop an agenda and
establish ground rules for discussion.
16. A family retreat can bring family members closer together as well as strengthen the family business.
17. Even if family members lack the capability to run the business, an entrepreneur should always select a
successor from this pool of talent.
18. A “best practices” for the family firm is to promote family members above other, more skilled
employees, so that the workers will understand who is in charge.
19. When a senior generation member is planning for succession, planning should encompass family
members, employees and the owners.
20. A responsibility of a junior generation member who desires advancement is to understand that change
is needed more so than the history of the family business.
21. Bequeathing equal shares of ownership to children in a family business will probably create havoc in
the future functioning of the business.
22. A critical part of a family firm transfer from one generation to the next is to discuss decisions with
potential heirs as well as family members working in the company.
23. When considering the long term health of a company during the transfer of ownership, tax advantages
should be the primary concern.
MULTIPLE CHOICE
1. Allan opened a hot dog stand in Central Park, New York City. He owns it and operates it six days a
week, year round. What kind of business is this?
a.
A sibling partnership
b.
A franchise
c.
A cousin consortium
d.
An owner-managed business
2. John and his brother Jack started a produce farm 20 years ago and are thinking about retirement. Over
time, their children have worked at the farm and so the cousins have started talking about taking over
management. At present, this produce farm is an example of ____.
a.
co-preneur managed business
b.
cousin consortium
c.
owner-managed business
d.
sibling partnership
3. Chip and Dale are brothers who have taken over their father’s business. This type of family business
is known as:
a.
a sibling partnership.
b.
a franchise.
c.
a cousin consortium.
d.
an owner-managed business.
4. Bret first opened his hardware store in 1946. His sons took over when Bret retired, and now Bret’s
grandchildren run the store. This type of family business is known as:
a.
a sibling partnership.
b.
a franchise.
c.
a cousin consortium.
d.
an owner-managed business.
5. In a family business, the interests of the family and the interests of the business are best described as
a.
overlapping.
b.
conflicting.
c.
coinciding.
d.
having no relationship with each other.
6. The close relationship of business factors and family concerns in a family business has been
described as
a.
separation of domains.
b.
a generational gap.
c.
an example of blood being thicker than water.
d.
overlapping.
7. A benefit of a strong family relationships is the greater willingness of family members to
a.
adopt new operating methods when needed.
b.
act generously in compensating nonfamily employees.
c.
sacrifice salaries and dividends when necessary.
d.
emphasize short-run profits.
8. Steve, Harry, and Chris, who own and operate a family auto parts store, are experiencing tough times
during a downturn in the local economy. To help the store survive these conditions, the brothers agree
to each take a 25 percent reduction in salary for a one-year period. This decision
a.
demonstrates a weakness of financial management.
b.
illustrates an important advantage of a family business.
c.
reveals a lack of customer orientation in a family business.
d.
reflects a lessening of entrepreneurial ambition in second-generation businesses.
9. An inherent problem for couples involved in a family business is that
a.
conflicts in the business tend to carry over into family life.
b.
hours of work may become longer for one person.
c.
uneven division of labor i.e. one person is only responsible for the menial tasks.
d.
some husbands find their masculinity threatened when their wives are better managers.
10. Jane and Joe are experiencing a strain with their family relationship after running their family business
for 5 years. Which issue might be the most likely underlying cause of the tension?
a.
Jane is the CEO while her husband is the CPA.
b.
Joe started the business but has stepped down from the CEO position.
c.
Jane and Joe’s roles have not been carefully defined as the business has grown.
d.
Their difference of opinions about a business matter is spilling over into their family time.
11. A founder’s core values may become part of the family business culture because
a.
the founder typically knows what is best for the company’s culture.
b.
others in the firm absorb traditions and values established by the founder.
c.
the values coincide with modern management theory.
d.
family members follow family traditions without excessive analysis.
12. As the only son, Eduardo’s father expected to one day turn over management of the business to him
despite Eduardo’s protests that he wanted no part of it. Following graduation from college, Eduardo
realized he did not want his father to let some outsider take over the business. Eduardo’s commitment
is based on:
a.
family control.
b.
identification with the firm.
c.
binding social ties.
d.
emotional attachment.
e.
renewal of family bonds.
13. Kinder’s Deli has been in business for three generations. A place was found for every Kinder child to
work in the shop. The name Kinder meant fine deli meats. This family’s commitment is based on:
a.
family control.
b.
identification with the firm.
c.
binding social ties.
d.
emotional attachment.
e.
renewal of family bonds.
14. The family endured great hardships together in the old country but vowed they would always watch
out for each other in America. Together they built a thriving business; it was the Muellers against the
world. This family’s commitment is based on:
a.
family control.
b.
identification of family members with the firm.
c.
binding social ties.
d.
renewal of family bonds through dynastic succession.
15. Mayer’s philosophy of never using debt to finance operations or expansion was born during the Great
Depression and passed on to his sons when they joined the family business. Today the multi-million
dollar organization proudly follows Mayer’s practice under the leadership of Mayer’s great-grandsons
and –daughters. This family’s commitment is based on:
a.
family control and influence.
b.
identification of family members with the firm.
c.
binding social ties.
d.
emotional attachment of family members.
16. Living over the workshop made it easy to involve the children in the daily business decisions. They
knew from the time they could write they were expected to work in and eventually manage and own
the business. This family’s commitment to the business is based on:
a.
family control and influence.
b.
identification with the firm.
c.
binding social ties.
d.
renewal of family bonds to the firm through dynastic succession.
17. Brandon always came in second— in birth order, in school and sports, and in his father’s heart.
When his older brother decided not to take over the family business as expected, Brandon was
paralyzed with fear. This paralysis was likely based on:
a.
fear of failure.
b.
fear of success.
c.
fear of commitment.
d.
fear of disappointing his friends.
18. Betsy had always had decisions made for her, first by her parents then by her husband. So when her
father asked her to take over the family business, she was afraid of:
a.
failure.
b.
success.
c.
commitment.
d.
disappointing outsiders.
19. “The more you can do, the more is expected of you.” Josh already had his hands full managing just
one of his father’s retail stores. He didn’t doubt his ability to do well managing an entire region but
still he was reluctant to accept the assignment. He is likely afraid of:
a.
failure.
b.
success.
c.
commitment.
d.
disappointing his parents.
20. After college graduation, Terrence was expected to begin working in the family business but instead
he continued to lead the playboy life, always postponing his decision about working for his father.
Terrence probably has a fear of?
a.
failure.
b.
success.
c.
commitment.
d.
disappointing others.
21. The recruiter from IBM made William an offer almost too good to be true. The problem was
William’s dad, who always expected William to join him in running the family business. William’s
difficulty in accepting either offer may be based on the fear of:
a.
failure.
b.
success.
c.
commitment.
d.
disappointing his father.
22. Liam’s mentor had worked with him for several months to prepare him for the promotion. Now that
the offer has been made, Liam is hesitant. His hesitation is likely based on:
a.
fear of failure.
b.
fear of success.
c.
fear of commitment.
d.
fear of disappointing his mentor.
23. A key factor of success in a family business is:
a.
commitment to organizational strategies.
b.
family unity.
c.
following ethical principles.
d.
contingency planning.
24. Fran and Bob (who are married) own and manage a cleaning service. A potential advantage of this
arrangement is that
a.
differences of opinion about the business won’t carry over into family lives since they will
see each other more hours daily.
b.
it affords the opportunity to share more of their lives and build something together.
c.
the business isn’t likely to dissipate their energies as they can each work on separate
sections.
d.
they can count on working fewer hours in the business.
25. An issue that may become a problem for a couples-owned business is:
a.
deciding who is boss.
b.
managing child care.
c.
spending too much time together.
d.
establishing company goals.
26. In considering the role of younger family members, the best philosophy is to recognize that
a.
a child should have a right to a job in the business if he or she desires.
b.
no family member should be hired at any level.
c.
children should have a right to choose their own careers.
d.
sibling rivalry will always be an issue with second-generation managers.
27. A common problem for a founder in passing the business on to a daughter or son is
a.
introducing the child to outsiders such as bankers.
b.
finding a suitable position for the son or daughter within the business.
c.
arranging the transition from part-time to full-time employment.
d.
deciding whether the child has the necessary temperament and ability.
28. From the children’s standpoint, one common reason that they may be reluctant to join the family firm
is a desire to
a.
make a difference in another industry.
b.
prove their abilities without family assistance.
c.
make a higher rate of pay.
d.
help the parent avoid favoritism.
29. Sibling rivalry in a family business
a.
rarely affects nonfamily members in the firm.
b.
may create disagreements about business policy.
c.
is unusual if roles are determined before the siblings join the business.
d.
is often good because it spurs business competition within the organization.
30. Bob and his sister Betty are co-owners of their late parents’ business. Bob actively manages the
business; Betty supplies only capital from her inheritance but does not work in the business. They
squabble over the distribution of profits from the business. Bob likely sees his sister as a
___________ while Betty views her brother as a _____________.
a.
predator, parasite
b.
co-owner, employee
c.
parasite, predator
d.
stockholder, manager
31. Which statement is the most correct about in-laws and possible complications in a family business?
a.
Rarely do in-laws impact the business since they are only indirectly involved and have
limited decision making responsibilities if at all.
b.
In-laws may impact the business if they are employed in the firm and are responsible for
decision making.
c.
There will be a complication only when in-laws are competing against another family
member for a promotion.
d.
In-laws will impact the business as they increase the number of persons who are either
directly or indirectly involved in the family business.
32. As the spouse of the President of Two Men and a Truck, Neil Bergeron serves the family business in a
typical but critical role of
a.
making impartial decisions on controversial business matters when his wife, Melanie,
asks.
b.
filling the role of a company director so as to provide balance in family matters.
c.
mediating family disputes.
d.
supporting Melanie through the many hours the business requires.
33. A document that states the principles intended to guide a family firm through times of crisis and
change, including the succession process is called the
a.
business plan
b.
articles of incorporation
c.
family business constitution
d.
corporate by-laws
34. One of the most frequent and stressful roles performed by the spouse who is not active in the business
is to:
a.
serve as the mediator between the entrepreneur and the children.
b.
be a good listener.
c.
mandate they are given a copy of the books each month.
d.
All of the above are activities of the non-active spouse.
35. To avoid a stifling atmosphere for nonfamily employees in a family business, the owner should
a.
promote only nonfamily members.
b.
avoid all special consideration for family members.
c.
make clear the extent of opportunity for nonfamily members.
d.
minimize discussion about future management changes.
36. To protect the interests of both the family and the business in a family business, the owner should
a.
recognize a basic obligation to supply the family with employment of some type.
b.
refuse to hire family members but, instead, reward them with generous dividends.
c.
personally make all personnel decisions affecting family members.
d.
identify the positions, if any, that are reserved for members of the family.
37. A nonfamily employee of a family business complains that the recent promotion of a family member
was unfair. The owner should
a.
enter into a discussion of the roles and opportunities for both family members and
outsiders.
b.
clarify that family members always have the inside track, even though this fact is
disappointing to the bypassed employee.
c.
get the employee to think more positively by describing other attractive features of the
employee’s job.
d.
acknowledge that a tension always exists and that it can never be dealt with satisfactorily.
38. Patricia, a nonfamily employee of a family business, is concerned about competing with family
members for future career opportunities. To protect her personal interests, she should
a.
align herself with the CEO to hopefully know when new positions will become open.
b.
ask that the owner/manager clarify the extent of opportunities considering her skill set.
c.
seek assurances that she will receive first consideration for promotion, ahead of family
members who are not as qualified.
d.
be realistic enough to leave the firm and seek employment in a nonfamily business.
39. Bella decided to hire a non-family member as her successor instead of selecting one of her children.
What might explain her decision?
a.
Bella didn’t think her children wanted the job.
b.
Bella wanted to bring in new skills and expertise.
c.
Bella’s children could never agree on anything.
d.
The competition had stepped up its game.
40. A family retreat is designed to
a.
bring family members together to openly discuss business matters.
b.
focus on business matters while avoiding extensive communication.
c.
control the lines of communication.
d.
announce the latest policy decisions and other changes in the business.
41. Family retreats, which open lines of communication,
a.
use the founding entrepreneur as a communication facilitator.
b.
avoid discussing sensitive issues for best results.
c.
involve family members but not in-laws.
d.
may result in formation of a family council to continue discussion.
42. A family council is most effective when:
a.
it is viewed as another type of casual get-together.
b.
works behind the scenes to maintain harmony between family and non-family employees.
c.
it comprises both family and non-family members.
d.
it provides governance to the organization and engages in strategic planning and family
succession planning.
43. A family business constitution is sometimes labeled a _____.
a.
business plan
b.
by-law guide
c.
family creed
d.
succession plan
44. Which statement is true concerning using available family talent in the succession plan?
a.
Younger family members working in the business should realize that mistakes early on in
their careers should be considered in their future advancement.
b.
If the available talent is not sufficient inside the company, the owner must bring in outside
leadership even if it is not perceived as a favorable decision by the family at large.
c.
If a younger family member would like to advance their career by working on a new
direction for the company, a negative decision by their parent means they should not
discuss their ideas with the board of directors.
d.
It is rare a younger member will have the skill set to rescue a struggling company;
therefore they should not be considered for a succession plan.
45. Jan and Jill started a business 20 years. Jill recently stepped down; her daughter Jenny has agreed to
start managing the company with Jan’s help; and the eventual goal is for Jenny to run the entire
company. This process between Jan and Jenny is called ____.
a.
sibling partnership
b.
family consortium
c.
mentoring
d.
Two of the above are true.
46. In preparing for succession, the senior generation has certain responsibilities. One of these is that:
a.
the estate of the senior generation should be settled and audited.
b.
the senior generation should hold the next generation accountable for their actions.
c.
the business should have a formal audit of the financial statements.
d.
the next generation should develop long term plans for leadership and be held to these
plans.
47. Senior management will be more receptive to the junior generation advancing if the junior generation
a.
decides what time is best for their personal lives.
b.
prepares for ownership by concentrating on learning “big” picture skills as opposed to
basic management skills.
c.
designs life plans for themselves and the business that involves what happens if the
business fails,
d.
proactively shares their preparation for advancement and ask for advice for
implementation.
48. What step is best for parents to decrease succession conflict among children active in the firm and
those who are not?
a.
Letting those not involved in the company have a larger portion of an inheritance outside
of the company and allow those involved in daily operations have more ownership of the
business.
b.
Letting the next generation reach a consensus about management of the company.
c.
Changing the ownership of the company so common (voting) stock is only given to those
active in the company and others receive preferred (nonvoting) stock.
d.
Making decisions based on tax considerations, not what is best for the next generation or
the business.
49. Jim, the founder of a family business specializing in real estate, is contemplating turning the business
over to his five children. One possibility, the founder believes, is to divide ownership equally among
the children. This action would
a.
be next to impossible as gaining consensus from six persons is difficult.
b.
be inherently unfair if any of the children work in the company.
c.
potentially hinder the future functioning of the business.
d.
require a possible change in corporate structure since the company deals in real estate.
50. A parent might attempt to resolve a transfer of ownership by giving active children in the firm’s
management _____ stock and giving nonactive children _____ stock.
a.
preferred, common
b.
growth, speculative
c.
common, preferred
d.
more, less
ESSAY
1. Explain the concept of family and business overlap in a family business.
2. Explain the role of the entrepreneur’s spouse as it affects a family business and show how it can be
made most effective if the spouse does not have an active part of daily operations.
3. What could a founder do to make a succession plan successful? Using the Three-Circle Model of
Family Firms, identify issues the founder should discuss with each group.
4. Identify the six positives of a family business and explain why these are positives.
5. Discuss guidelines for a successful family business retreat.
MATCHING
For each definition, select the term that best fits.
a.
co-preneurs
h.
mentoring
b.
cousin consortium
i.
nepotism
c.
family
j.
organizational culture
d.
family business
k.
owner-managed business
e.
family business constitution
l.
sibling partnership
f.
family council
m.
socioeconomic wealth
g.
family retreat
1. The practice of employing relatives
2. A business in which children of the founder become owners and managers
3. An organization in which either the individuals who established or acquired the firm or their
descendants significantly influence the strategic decisions and life course of the firm
4. Couples teams who own and manage businesses
5. A gathering of family members, usually at a remote location, to discuss family business matters
6. The process by which a more-experienced person guides and supports the professional progress of a
new or less-experienced employee
7. Non-financial factors in a family firm that affect the commitment of family members to the business
8. A statement of principles intended to guide a family firm through times of crisis and change
9. An organized group of family members who gather periodically to discuss family-related business
issues
For each definition, select the term that best fits.
a.
cousin consortium
h.
family retreat
b.
family
i.
organizational culture
c.
family business
j.
owner-managed business
d.
family council
k.
sibling partnership
e.
family creed
l.
socioemotional wealth
f.
family of attachment
m.
transfer of ownership
g.
family of origin
10. The new, separate relationship formed when an individual partners with another person plus the family
connections acquired with the partner
11. Patterns of behaviors and beliefs that characterize a particular firm
12. A group of people bound by a shared history and a commitment to share a future together
13. A business in third and subsequent generations, when children of the siblings take ownership and
management positions
14. Passing ownership of a family business to the next generation
15. A venture operated by a founding entrepreneur
16. A statement of principles intended to guide a family through times of crises and change
17. The relatives who form your world in your childhood